Bustamante Write-Offs on Rental Raise Questions

Lt. Gov. Cruz Bustamante has cut his state and federal tax bills in recent years by claiming thousands of dollars in losses on a government-subsidized rental he owns, including at least one deduction that his accountant acknowledges may have been handled improperly.

The write-offs have allowed Bustamante to trim more than $6,000 off the taxable income from his state salary and other sources over the last five years. The deductions have also meant that Bustamante and his wife had to pay taxes on only $191 of more than $31,000 in rent they received, his tax filings show.

Some of the write-offs raise questions about how Bustamante accounted for outlays tied to the home, according to tax experts consulted by The Times.

Despite the expenditures on upkeep claimed by Bustamante, the rental has failed three government health and safety inspections in the last two years.

The three-bedroom home in one of Fresno’s poorest areas is required to undergo inspections annually and upon change of tenants because Bustamante receives a majority of his $720 in monthly rental income from a federally funded program to aid low-income families.

Among the deficiencies cited by inspectors have been broken window panes and missing window locks, exposed wiring, electrical plugs near sinks and not grounded, broken stove burners, large holes in the backyard and a toilet that didn’t flush properly, according to Fresno County Housing Authority records.

In each case, Bustamante corrected the problems.

His one-time expenses on the rental last year included $4,000 in repairs. The repairs were not detailed, but Bustamante said they had included a new roof. He said he did not recall how much he had paid for the roof, which his uncle installed.

Such expenses, according to tax experts, are required to be written off in smaller increments over a period of years. But the experts note that landlords sometimes try to speed up write-offs to reduce current tax liabilities.

David Gorham, a Fresno accountant who prepared Bustamante’s returns, said in an interview that the roof probably should not have been fully written off in a single year. He said he had not been provided with receipts or a detailed breakdown of the repairs claimed by Bustamante.

“I probably didn’t have all that information at the time I made the returns,” Gorham said.

The accounting on the new roof “makes you wonder if he paid his full legal share of tax” last year, said Al Ristuccia, a former supervisory special agent with the Internal Revenue Service’s criminal division.

How much Bustamante’s tax bill would have increased if the roof had been only partially depreciated is unclear. Gorham said he doubted it would have been enough even to warrant filing a corrected return. Overall, the lieutenant governor last year paid $18,441 in federal and state income taxes on an income of about $117,000.

Bustamante, who referred The Times to Gorham, said he depends on the accountant to fill out his returns properly. The lieutenant governor added that he had receipts to document all the expenses and losses he and his wife had claimed.

“If the IRS ever wanted to come in and audit,” Bustamante said, “I have everything available.”

Gorham said Bustamante had been conservative with the write-offs on the rental home. Other tax experts were not so sure.

For example, in the middle and early 1990s, Bustamante amortized over several years the expenses for such improvements as a kitchen cabinet and carpet, his tax filings show. The last such depreciated expense was a $450 water cooler installed in 1996.

Since 1997, however, all of Bustamante’s nearly $20,000 in outlays for maintenance, supplies and repairs have been fully written off in the years they occurred.

Phil Holthouse, a partner in a Los Angeles accounting firm, said it is unusual for a rental property owner not to have ongoing expenses that must be written off over a period of years. The general rule, he said, is that anything that benefits the property for more than a year or increases its value must be depreciated over time.

Gorham said Bustamante’s large repair bills have been necessary because his tenants have not always taken care of the property.

“His rental is an area where you are not getting your upper-management people to live in it,” Gorham said. “It was totally trashed” a few years ago.

The yellow-and-white home had a dust-covered car in the oil-stained driveway on a recent weekday. Much of the frontyard was crab grass and a large patch of dirt, where Bustamante had taken out an old tree. His rental was not the worst home in the predominantly African American and Latino neighborhood just west of Fresno’s downtown. Nor was it the best.

Bustamante, who has positioned himself as a champion of the poor and working class in the current campaign, said he had always fixed problems as they were brought to his attention. He declined to say whether he was proud of his rental property.

Such questions, he said, were best answered by the people who have lived there.

“If they think it is a decent place to live, I would accept that,” he said. “I would defer to their evaluation.”

Previous tenants could not be reached for comment. The current renter, Deirdre Tate, moved in last summer after the worst batch of the problems cited by the inspectors had been fixed.

Sitting in her living room, Tate said she had no complaints about Bustamante.

She noted that when she had dropped off her rental application, she had been surprised to see the lieutenant governor in his work clothes painting the walls and laying carpet with his relatives.

“I couldn’t ask for a better landlord,” she said.

The property has been the couple’s largest investment other than their beige stucco home in a quiet neighborhood in the Sacramento area city of Elk Grove, where Bustamante recently held a news conference. He said then that communities are “sick and tired of not having the kind of attention that they deserve.”

Bustamante and his wife bought the Fresno rental in 1983 from the federal Department of Housing and Urban Development under a program designed to breathe life into distressed neighborhoods. Tax incentives at the time, designed to lure buyers to troubled properties, allowed accelerated write-offs of purchase costs. The last of those benefits on the Bustamantes’ initial $35,800 investment expired several years ago, the records show.

Bustamante said he had purchased the property when he was a local caseworker for Rep. Richard Lehman, who sat on committees that oversaw federal housing programs. Files on the purchase no longer exist, federal housing officials said. Bustamante said he had learned of the property, not through his congressional connections, but from former Fresno Councilman Al Villa, who had become a real estate agent.

“He told me to think of it as a college fund for the family,” Bustamante said. “I thought it was a good idea.”

The property has also been a source of cash. Earlier this month, records show, Bustamante refinanced the home, which he said had been recently appraised at about $60,000.

His campaign consultant, Richie Ross, said Bustamante had used several thousand dollars from the refinancing to pay off a car loan and to put aside money for a daughter’s college education.

“We anticipated this story would come out,” Bustamante said. “I always knew at some point someone would come around” and compare the house to others in the neighborhood and “either criticize me or say I was doing a pretty good job.”